As Canadians head into RRSP season this year, experts say it is all about having a plan and sticking to it.

Mike Henry, a senior vice-president at Bank of Nova Scotia, said there are not enough Canadians with a written financial plan.

A poll done for Scotiabank suggested that 39 per cent of Canadians say they have a plan to contribute to an RRSP this year, the same as last year. And of those who say they don’t have the money to save, 70 per cent don’t have a written financial plan and 80 per cent don’t feel they are on track to achieving their retirement goals.

RRSP Season

Retirement

“Part of putting together a financial plan is understanding what your budget looks like,” Henry said.

Canadians are carrying, on average, record levels of household debt that could handicap some as they weigh the balance between saving and paying off their debts faster.

According to the latest calculation by Statistics Canada, the average household owes nearly $1.65 for each $1 in annual disposable income.

“If you’ve got debt to pay down, that’s got to be a key plank in your financial plan and there is an opportunity cost,” Henry said.

For most people the deadline this year for RRSP contributions is March 1.

However, if you turned 71 last year, your deadline was Dec. 31, 2012, and you need to be thinking about your options including withdrawing them, transferring them to a RRIF or buying an annuity for life.

Your RRSP contribution limit is 18 per cent of your earned income from the previous year to a maximum of $22,970 for 2012, though that amount will be lower if you have a company pension plan or a deferred profit sharing plan.

But if you have unused contribution room from past years, you may be able to use that amount to contribute more.

Canadians also have to weigh the choice between RRSP and Tax-Free Savings Accounts, which don’t give the immediate benefit of a tax deduction but won’t be taxed when the money is taken out like an RRSP.

Whether it be an RRSP or TFSA, the money contributed can be invested in mutual funds, stocks, bonds and GICs.

The limit for TFSA contributions was increased to $5,500 for this year, up from $5,000 last year and unused contribution room carries over from past years.

Heather Rivers, manager of financial planning at Vancity, said the choice between paying down debt, TFSA accounts and RRSPs will be determined by individual circumstances and an investor’s financial plan.

Rivers notes that, recently, paying down debt over other savings has been a trend as Canadians take heed of the repeated warnings by Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney that super low interest rates won’t last forever.

But she also urged young Canadians to start saving for retirement early, even with a small amount, and let time work for you whatever the form the investment takes.

“That’s really important now given that interest rates have gone down so low overall that we can’t count on 10 per cent returns to boost up our savings balance,” she said.

“We’re looking at if we’re not taking additional sort of risk we might be looking at one per cent, two per cent, three per cent as our steady rate of return, so that means you have to start really early.”

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